The year of economic vandalism
President Buhari has declared his intention, as is his right, to run for a 2nd term. Unlike the last time when he ran on vague promises and against a hapless incumbent, this time there is a clear record by which Nigerians can take an objective measure of the man and his party. In my own view, the current government’s handling of the forex crisis in 2016 did incredible and needless damage to the Nigerian economy. In 2016, Nigeria went through its first recession in 25 years and is yet to recover from that contraction.
Almost from day one, the president publicly stated his strong opinion on what the exchange rate should be, regardless of any exogenous factors. The logic behind this was to protect Nigerians from some pain they were incapable of handling. But intention is one thing, reality is quite another because the consequence of having monetary policy being set by the president was that the economy froze and was taken over by indecision and unpredictability. I am no fan of the CBN governor but in fairness to him, he had devalued twice before the current government came to power. To be absolutely clear – devaluation is and was never an economic magic bullet. It is a painful option to have to take but it is the least bad because it allows the economy adjust to a new reality and continue to grow. The only thing worse than low or uneven growth is no growth at all.
The excuse given is that the previous government left nothing in reserves and as such the only response was to keep a fixed exchange rate that could not clear the market. This is comical. In 2008, when oil prices crashed and Nigeria had well over $60bn in reserves, Governor Soludo still devalued the naira. Why? Because reserves are a sign of confidence. If oil prices crash and you start spending reserves to defend an artificial exchange rate, you invite speculators to test how far you can go and speculate on your currency. What if oil prices don’t go back up? Reserves are not infinite so you might end up with no reserves and still devalue. Who has not heard of those Nigerian politicians who leave office and try to continue ‘maintaining their lifestyle’ and then go broke rapidly? But the president went to Doha and London and everywhere else vowing not to devalue the naira.
The result was that a complex economy with millions of daily interactions was reduced to man-know-man as the means of obtaining scarce forex. Pastor Lagbaja and Alhaji Tamedun, who both import diesel, would apply for forex and the Pastor would get while the Alhaji wouldn’t. There was no logic or science to it and corruption flourished. It was impossible to plan your business given you didn’t know if you would get forex or not. Those who got forex regularly were those who had been chosen as special. In 2016, Nigeria’s biggest company, Dangote Cement, reported a total income of N287bn but out of that, an incredible N101bn came from gains made from forex.
One underreported effect of all this was the sheer amount of economic distraction it caused. Every Nigerian was turned into a forex speculator overnight. The dollar was the most talked about thing on social media – people were checking the dollar rate every 5 minutes. It was like trying to study for an exam and having facebook open in front of you. Speculating on the dollar became more profitable than any other business in the country.
And then government officials, perhaps realising their mistake, doubled down. ‘Intellectual’ or ‘economist’ became an insult. One former governor – who probably thinks an economic model is something that is tall, light skinned and beautiful – led the charge in praising the president and questioning the motives and patriotism of anyone who disagreed. The APC has some of the most intelligent minds in Nigeria yet it was pin drop silence from them as the president performed open heart surgery on the economy using a blade and no anaesthesia.
What else could reasonably be expected from a year like that? The economic recession was man made and wholly avoidable. The year where Nigeria tried to keep an unrealistic rate of N199/$1 ended with a painful recession. After devaluing to N360/$1, the economy managed to grow last year slightly. The irony is rich and thick. But today, what we are being told is that the recession was inevitable and it was because PDP left nothing in reserves. The people who vowed never to do the thing they have now done are now collecting awards for it. What exactly was the point?
All this leaves one question to answer. What will happen if and when the Nigerian economy suffers another external shock? These things happen fairly often and without warning so it will be good to ask the President and his party how they will react to such an event and ensure the Nigerian economy is not put through another needless and painful contraction.
Anything else is just pure economic vandalism.
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